Are green taxes funding offshore oil and gas exploration?

Green taxes are meant to shift the burden of tax away from environmentally damaging activities like CO2 emissions or waste going to landfill, to environmentally good things like renewable energy and tackling fuel poverty. But arguably, the huge inflow of green taxes and levies, worth over £3billion in 2011-12 and more than double that by 2016-17, has made it possible for the Coalition to support a new round of offshore and gas exploration. As we blogged on Budget Day, the Chancellor announced a new £3 billion field allowance for” particularly deep fields with sizeable reserves targeted at the West of Shetland.”

George Osborne also increased the allowance for small oil and gas fields to £150 million. This was backed by “a new gas generation strategy” to secure investment in gas fired power stations.

We suspect that the total green tax take is actually much higher, though the environmental tax figures are not all in one place. But according to the OBR, combined receipts from four environmental taxes – climate change levy (CCL), aggregates levy, landfill tax Emissions Trading Scheme (ETS) – are expected to increase from £2.4 billion in 2011-12 to £5.9 billion in 2016-17. This rise primarily reflects the introduction of the carbon price floor in 2013-14 starting at £9.55 a tonne of CO2, as well as the new round (Phase 3) of the ETS in 2013. This will auction a higher number of allowances.

Add to this the revenues from the Carbon Reduction Commitment (CRC). The CRC is likely to bring in about £700m in 2011-12, about the same as last year. In June, the largest service sector organisations check in to buy their CO2 allowances at £12 a tonne, set by the Chancellor in this week’s Budget. CRC revenues look likely to rise to £1bn by 2016-17.

As the Coalition agreement said: “The Government believes that the tax system needs to be reformed to make it more competitive, simpler, greener and fairer.”

Written by Philip Pearson

Philip is a former Senior Policy Officer in the TUC’s Economic & Social Affairs Department, working on issues around climate change, energy and transport.